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Oil, Natural Gas, and Alternative Fuels

Federal agencies could improve how they manage and oversee the nation's oil, natural gas, and alternative fuels

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The United States is the largest producer of oil, natural gas, and alternative fuels in the world. The federal government manages and oversees a number of activities related to these industries, including oil and gas development on federal lands and waters, petroleum refining, oil and natural gas transportation, and federal biofuels requirements.

Various federal agencies, including the Department of the Interior (Interior), could improve how they manage and oversee these activities.

Challenges at the Department of the Interior

Interior’s management of federal oil and gas resources is on the High Risk list due to issues like human capital challenges and the restructuring of offshore oil and gas oversight. Four priority recommendations in 2020 to Interior also involved improving oversight of offshore oil and gas activities.

Other examples of Interior’s challenges include:

  • Royalties that companies pay on the sale of oil and natural gas extracted from leased federal lands and waters constitute a significant source of revenue for the federal government. However, Interior may not be collecting all of the royalties that oil and gas companies owe the federal government. The Office of Natural Resources Revenue could better ensure the accuracy of royalty payments from companies with federal leases.
  • The Bureau of Ocean Energy Management leases exploration rights to companies and sets royalty rates on production. However, it systematically underestimates the value of offshore oil and gas leases, resulting in the government collecting hundreds of millions of dollars less than it otherwise could.
  • Oil and natural gas wells on federal land bring in billions in federal revenue. However, if operators don’t properly manage these wells, the government may end up paying to clean them up when they stop producing. The Bureau of Land Management (BLM) identified 89 new wells between July 2017 and April 2019 that it would be responsible for cleaning up because operators’ bonds were too small to cover cleanup costs. BLM should adjust bond amounts to better reflect the costs of cleanup.
  • BLM receives more applications to drill on federal land than it can review each year. While the application backlog has improved—with review times dropping by more than half from May 2016-June 2019—there have been issues with the data system used to track applications (such as lost records).
  • The Bureau of Safety and Environmental Enforcement helps manage oil and gas production offshore in federal waters. However, it has not fully addressed deficiencies in its investigative, environmental compliance, and enforcement capabilities that were identified by investigations after the Deepwater Horizon incident.

Other federal challenges

Other federal agencies and entities could also improve how they manage and oversee issues with the development of oil, natural gas, and alternative fuels.

For example:

  • A 2015 leak at a natural gas storage site near Los Angeles temporarily displaced about 8,000 families and raised concerns about other sites. In 2018, the Pipeline and Hazardous Materials Safety Administration set a goal to inspect the roughly 400 natural gas storage sites in the country by 2023. It expected that 25 states would help, but so far only 10 have agreed to do so. The agency should examine the factors affecting states’ willingness to conduct inspections, which could help determine whether it will have enough staff to meet its goal.

  • It can take decades and billions of dollars to undo the environmental damage after a significant offshore oil spill. A federal-state trustee council is set up after such a spill to manage the money for related environmental restoration projects. Federal research on environmental restoration after an oil spill could be relevant to the trustee councils' work. However, the committee that coordinates federal oil spill research doesn't collaborate with the trustee councils.
  • In 2019, about 39% of U.S. natural gas exports went through export facilities—in which the gas is liquefied and loaded onto ships for transport. Multiple federal agencies regulate export facility design. Federal guidance says that agencies should review regulations every 3-5 years and adopt necessary technical standards for safety and environmental protection. But some regulations haven't been updated.
  • To help reduce greenhouse gas emissions, the Renewable Fuel Standard requires that U.S. transportation fuels contain 36 billion gallons of renewable fuels by 2022. However, the nation will likely not meet the emissions goals set for it through 2022, largely because advanced biofuels—which reduce emissions more effectively—haven't been produced as expected.
  • The Strategic Petroleum Reserve, managed by the Department of Energy (DOE), exists to minimize the effects of disruptions in the supply of petroleum products. As of March 2018, it held about 665 million barrels of crude oil. However, a review by DOE didn't determine an optimal size for the reserve, and did not fully consider factors like changes in current and future market conditions.
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  • portrait of Frank Rusco
    • Frank Rusco
    • Director, Natural Resources and Environment
    • ruscof@GAO.GOV
    • 202-512-4597